Sun, Aug 04, 2019 page14

• S&P 500 has its worst week of year

  LIMITED OPTIONS: While expectations of another Fed rate cut are high, the federal funds rate sits significantly lower than the level it was at before the Great Recession

  • AP
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  Investors rattled by US President Donald Trump’s latest escalation in his trade war with China on Friday drove another round of selling on Wall Street.

  The latest losses marked the fifth straight drop for the S&P 500 and the worst week of the year for the market just seven days after the benchmark index hit an all-time high.

  The selling picked up a day after Trump shocked markets by promising 10 percent tariffs on all the Chinese imports that have not already been hit with tariffs of 25 percent.

  

  China on Friday struck back, saying that it would take “necessary countermeasures” if Trump follows through on the new tariffs, which would kick in next month.

  The re-escalation in tensions between the world’s largest economies has raised worries about a global recession. Investors have responded by selling stocks and buying gold and government bonds.

  The heightened tensions have also raised Wall Street’s expectations that the US Federal Reserve would be forced to cut interest rates several times to cushion the trade war’s blow.

  The S&P 500 on Friday fell 21.51 points, or 0.7 percent, to 2,932.05, plummeting 3.1 percent from a close of 3,025.86 on July 26.

  The Dow Jones Industrial Average on Friday dropped 98.41 points, or 0.4 percent, to 26,485.01, a loss of 2.6 percent from 27,192.45 a week earlier. The average had briefly fallen by 334 points.

  The NASDAQ Composite, which is heavily weighted with technology stocks, on Friday lost 107.05 points, or 1.3 percent, to 8,004.07, a 3.9 percent plunge from a close of 8,330.21 on July 26.

  Smaller company stocks also fell sharply. The Russell 2000 on Friday gave up 17.11 points, or 1.1 percent, to 1,533.66, dropping 2.9 percent from 1,578.97 a week earlier.

  Despite the weekly losses, the major indices are all up solidly this year, led by the NASDAQ’s 20.6 percent gain. The S&P 500 is up nearly 17 percent.

  Technology companies accounted for much of Friday’s sell-off, which lost some strength toward the end of the day. Communications services, consumer discretionary and energy stocks also bore a big share of the losses.

  Investors shifted money into bonds and stocks traditionally seen as less risky: real estate and utilities.

  A monthly government jobs report hewed close to economists’ expectations, showing a slowdown in hiring last month.

  However, analysts said that it was overshadowed by worries about trade and what the Fed could do about it.

  The Fed on Wednesday cut interest rates and Chairman Jerome Powell cited “trade policy uncertainty” as a major reason for the move.

  However, he stopped short of promising a long cycle of rate cuts, which left investors disappointed and Trump tweeting that “as usual, Powell let us down.”

  The next day came Trump’s tweet on tariffs and investors said that there is a 98 percent probability that the Fed will cut rates again at its next meeting next month.

  That was up from an about 50 percent probability on Wednesday afternoon.

  “We just ratcheted up the trade conflict and now that makes the Fed much more likely to cut,” Charles Schwab Corp vice president of trading and derivatives Randy Frederick said.

  However, the Fed has less ammunition than in the past to cut rates, because they are already historically low. The federal funds rate sits at a range of 2 percent to 2.25 percent, compared with the 5.25 percent perch it sat at before the Great Recession.

  Rate cuts alone also might not be able to fully counteract the possible negative repercussions of the trade war.

  Trade uncertainty has been weighing on business investment spending, and this latest escalation only added more fuel to the fire.

  The latest round of announced tariffs, which would go into effect on Sept. 1, more directly affect US consumers shopping at Walmart Inc or Target Corp stores.

  Additional reporting by staff writer
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